Latest / Bull Market Conversations with Fexingo: Rallies, Momentum, and Riding Market Strength / How Bull Markets Are Challenging Growth at a Reasonable Price
Transcript
- Lucas: Luna, I've been watching Shopify drop over five percent in the past five days, and Palantir down more than seven. On the surface, these are the kind of high-momentum names that should be thriving in a bull market that's pushing the S&P 500 above seventy-four hundred. Luna: Right, because the market's still up year-to-date. But those moves suggest some investors are getting twitchy about valuation. Lucas: Exactly. And it's not just those two. CrowdStrike fell seven and a half percent. Datadog dropped six. These are all companies with strong narratives but very high multiples. The question is whether the bull market is entering a phase where 'growth at any price' gets replaced by 'growth at a reasonable price.' Luna: So you're talking about the GARP playbook. Growth at a Reasonable Price. It's not new, but it might be making a comeback. Lucas: Exactly. And the data seems to support that shift. Look at the IWF—the iShares Russell 1000 Growth ETF—it's only down two-tenths of a percent over the same five-day window. Meanwhile ARKK, the more aggressive innovation ETF, is down nearly one percent. That gap tells me investors are still willing to pay for growth, but they're being more selective. Luna: It's like the market is rotating within growth itself, not out of growth. The frothy stuff is getting sold, but the more established growers are holding up. Lucas: Precisely. And the macro backdrop gives this rotation some logic. Real GDP growth is at two point one percent annualised, up from just half a percent a year ago. That's a solid but not booming economy. The Fed's holding the funds rate at three point six three percent, so borrowing costs aren't coming down fast. In that environment, companies need to justify their multiples with actual earnings, not just promises. Luna: Which brings us to the GARP framework. How do you even define 'reasonable' in this market? I mean, the S&P 500 is at seventy-four ninety-nine. That's not cheap by historical standards. Lucas: No, it's not. But GARP isn't about buying the broad index. It's about finding individual stocks where the price to earnings ratio is in line with the earnings growth rate. A classic rule of thumb is a PEG ratio—price to earnings divided by earnings growth—of one or less. That's tough to find in this market, especially in tech. Luna: Yet some investors are clearly trying. The selling in Shopify and Palantir suggests a reassessment. Maybe those stocks had run too far, too fast, and the GARP crowd is stepping in with a more disciplined bid elsewhere. Lucas: And if that keeps up, it changes the character of this bull market. We've been talking for months about momentum and narrative. But if the market starts rewarding companies that can show actual earnings growth at a reasonable multiple, then the leaders could shift. Think about it: CrowdStrike is down seven and a half percent on the week. That's a sharp move for a company that's still growing revenue at over thirty percent. Luna: But their P/E is still astronomical. So maybe the market is saying, 'Show me the profits, not just the growth rate.' Lucas: Right. And that's the healthy side of a bull market. Corrections within sectors force discipline. They separate the companies that are genuinely compounding from the ones that are riding a wave. This is actually a good moment to step back and think about what we value in a show like this. Luna: How do you mean? Lucas: We deliberately keep Bull Market Conversations ad-free. We don't run commercials, we don't do sponsored segments. That's a choice. It means the only thing driving the conversation is what we think is interesting and useful. If that approach has helped you think about your own investing, or just understand the market better, you can support the show at buy me a coffee dot com slash fexingo. It's a simple way to keep this independent. Luna: Yeah, I like that. It keeps the signal clean. No product pitches interrupting the analysis. Lucas: Exactly. So back to the rotation. If GARP is gaining traction, which sectors benefit? Traditionally, it's been industrials, healthcare, and some tech with real earnings. But in this cycle, I'm watching the Russell 2000. It's only down half a percent on the week, but it's been lagging the S&P 500 for months. If value-oriented growth starts flowing into small caps, that could change. Luna: We did an episode on small caps being ignored. But maybe the GARP shift is the catalyst they need. Smaller companies often have lower valuations and higher growth potential, which fits the framework. Lucas: And they're more sensitive to domestic economic conditions. With GDP growth at two point one percent, the domestic economy is steady. If the Fed stays put, small caps with reasonable valuations could become attractive. But there's a risk. Luna: Which is? Lucas: That the market doesn't actually rotate. That the momentum in mega-cap tech is so entrenched that any dip is bought immediately, and the GARP trade never really takes hold. Look at the NASDAQ—down only seven-tenths of a percent. That's not a crash. It's a pause. Luna: So you're saying the GARP thesis depends on sustained discipline from investors. And discipline is exactly what breaks during a bull market. Lucas: Exactly. The longer the bull runs, the harder it is to stick to valuation metrics. But that's also when the biggest mistakes happen. If you bought Shopify at its peak before this five percent drop, you're already underwater. GARP doesn't prevent losses, but it can limit them. Luna: Let's talk about a concrete example. Take a company like ServiceNow. It's not in our data, but it's a classic GARP candidate—consistent earnings growth, solid margins, and a P/E that's high but not absurd. Did it move this week? Lucas: It was mentioned in the after-hours moves along with Alphabet and Tesla. But the point is, ServiceNow has a PEG ratio around one point five, which is reasonable for its growth rate. Compare that to Palantir, which has a PEG ratio north of three. That's the difference between GARP and pure momentum. Luna: So the market might be starting to price that difference. Palantir down seven percent, ServiceNow probably flat or up. It's subtle, but it's a signal. Lucas: And it's consistent with what we're seeing in the broader indexes. The Dow is down six-tenths of a percent, the S&P down half a percent. Those are modest declines. The pain is concentrated in the high-multiple names. That's not a market top. That's a rotation within growth. Luna: Which is exactly what a healthy bull market does. It doesn't go straight up. It corrects, it rotates, it finds new leaders. Lucas: Right. And the question for investors is whether to follow that rotation or to stick with the momentum names through the dip. If you believe in GARP, you trim the names that have run too far and add to the ones with reasonable valuations. If you're a pure momentum investor, you hold on and hope the narrative returns. Luna: Which approach has historically worked better in the later stages of a bull market? I know there's research on this. Lucas: There is. Studies show that in the late-cycle phase, value and GARP tend to outperform pure momentum. Momentum works best early in a trend. As the trend matures, the easy money has been made, and the market starts rewarding fundamentals. We might be at that inflection point now. Luna: But the Fed hasn't cut rates. That's usually a tailwind for growth stocks. If the Fed stays at three point six three percent, does that help or hurt the GARP case? Lucas: It helps. Higher rates for longer mean the present value of future earnings is lower. That hurts companies with far-off profit expectations—the classic high-growth names. GARP companies, by definition, have earnings today. They're less sensitive to rate changes because their cash flows are nearer. So a steady Fed actually supports the rotation. Luna: That's a good point. So if the Fed stays on hold, and GDP growth remains around two percent, the environment is actually quite favourable for GARP. It's not boom, but it's steady. Lucas: Exactly. And I think the market is slowly pricing that in. The moves this week are small, but they're in the right direction. If I were managing a portfolio right now, I'd be looking at companies with a PEG ratio below one point five, consistent revenue growth above fifteen percent, and positive free cash flow. Those are the names that should hold up if the rotation continues. Luna: Give me one name that fits. Not a recommendation, just an example. Lucas: Sure. Look at a company like Microsoft. It's not in the data we have, but it's a perennial example. It has a P/E around thirty, earnings growth around fifteen percent, so a PEG of two. That's not screaming cheap, but it's reasonable for a company with its moat. And it's down less than the market this week, I'd wager. That's the kind of resilience GARP investors look for. Luna: So the takeaway is: this bull market isn't broken, but it's maturing. And maturity calls for a different playbook. Lucas: Exactly. The same strategy that worked in 2024 and early 2025 might not work in the second half of 2026. The data is telling us to pay attention to valuation again. Not to abandon growth, but to be more discerning about which growth. Luna: And that's a conversation worth having. Thanks, Lucas. Lucas: Thanks, Luna. We'll keep watching the rotation.